BILL ANALYSIS Ó
AB 1069
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Date of Hearing: April 12, 2011
ASSEMBLY COMMITTEE ON ARTS, ENTERTAINMENT, SPORTS, TOURISM, AND
INTERNET MEDIA
Nora Campos, Chair
AB 1069 (Fuentes) - As Introduced: February 18, 2011
SUBJECT : Income taxes: extension of film credits
SUMMARY : Extends for five years the requirement that the
California Film Commission (CFC) annually allocate tax credits
to qualifying motion pictures, as specified, through the
2018-19 fiscal year, and deletes redundant provisions of the
Revenue and Taxation Code. Specifically, this bill :
1)Extends the requirement in law that that CFC annually issue
$100 million ($100,000,000) in tax credits to qualifying
motion picture productions, as specified, through the 2018-19
fiscal year. (See Existing Law for a detailed explanation of
the film tax credit program).
2)Deletes a duplicative and unnecessary section of the Revenue
and Taxation Code.
EXISTING LAW
1)Establishes a motion picture production tax credit, equal to
either:
a) 20% of the qualified expenditures attributable to the
production of a qualified motion picture, or;
b) 25% of the qualified expenditures attributable to the
production of a television series that relocated to
California, or an independent film.
2)Defines "independent film" as a film with a budget between $1
million and $10 million produced by a non-publicly traded
company which is not more than 25% owned by publicly traded
companies.
3)Requires the CFC to administer a motion picture production tax
credit allocation and certification program, as follows:
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a) Taxpayers will first apply to the CFC for a credit
allocation, based on a projected project budget.
b) Upon receiving an allocation, the project must be
completed within 30 months.
c) The taxpayer must then provide the CFC with verification
of completion and documentation of actual qualifying
expenditures.
d) Based on that information, the CFC will issue the
taxpayer a credit certificate up to the amount of the
original allocation.
4)Defines "Qualified motion pictures" as one produced for
general distribution to the public, and include feature films
with budgets between $1 million and $75 million; Movies of the
Week with a minimum budget of $500,000, and new television
series with a minimum production budget of $1 million.
5)Requires that in order to be eligible for the credit, 75% of
the production days must take place within California or 75%
of the production budget is incurred for payment for services
performed within the state and the purchase or rental of
property used within the state.
6)Declares that the credit is not available for commercial
advertising, music videos, motion pictures for non-commercial
use, news and public events programs, talk shows, game shows,
reality programming, documentaries, and pornographic films.
7)Requires that the commission allocate $100 million of credit
authorizations each year during the period 2009-10 through
2013-14 on a first-come, first-served basis, with 10% of the
allocation reserved for independent films.
8)Declares that any unallocated amounts and any allocation
amounts in excess of certified credits may be carried over and
reallocated by the commission.
9)Provides that qualifying taxpayers could claim the credit on
their tax return filed with the Franchise Tax Board (FTB)
under either the Personal Income Tax or Corporation Tax.
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10)Provides further that taxpayers may use certified credits in
a number of ways, they may;
a) Claim it directly;
b) Assign it to another member of their unitary group;
c) Sell the credits to other taxpayers, or;
d) Elect to apply the credit against their sales and use
tax liability.
11) Specifies that the CFC will allocate $100 million of credit
authorizations each year during the period 2009-10 through
2013-14 on a first come first served basis.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Statement and Support :
According to the author, "California has suffered both
job and financial losses as hundreds of productions have
left the state to seek incentives offered elsewhere. A
phenomenon commonly referred to "run-away production."
"In addition to the international competition from
Canada, Australia and most EU nations, over 40 U.S.
states offer meaningful financial incentives to the film
industry successfully luring production and
post-production jobs and spending away from California.
"In February 2009, the California Film & Television Tax
Credit Program (Program) was enacted as part of a
targeted economic stimulus package to increase production
spending, jobs and tax revenues in California. This
bill, in seeking a five year extension to the existing
law, acknowledges that the Program has been successful in
its goal to retain and increase film and television
production occurring in California."
The author quotes the CFC as saying, "The California Film and
Television Tax Credit Program was designed to target those
productions most at risk of leaving the state while
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recognizing annual funding limits due to state budget
constraints. The program has succeeded in attracting this
target group: basic cable TV series, mid-sized feature films
and made for TV movies. Even with this narrow target of
potential applicants, which excludes the big-budget feature
films and broadcast network TV series, demand exceeds supply.
In order to retain and grow California's signature
entertainment industry, the state must be competitive so that
productions will choose to base their film shoots in
California. An enhanced incentive program will prevent
production companies from moving their projects, jobs and
spending out of state."
According to the Screen Actors Guild, "As written, the
California Film and Television Incentive Program will expire
in 2014 and it is vital that we support this legislative
effort to extend the program for five years, pushing back its
sunset to 2019. This bill will keep the positive momentum
that the program has built going. It is for these reasons
that we urge state lawmakers to pass this important piece of
legislation."
The Motion Picture Association of America, Inc. adds, "As you
are no doubt aware, there are forty states and many foreign
countries with aggressive programs to attract motion picture
production to their jurisdictions. It is vital that
California competes to retain this important engine that
contributes ingenuity, talent and creativity to our economy."
2)Existing Film Production Tax Credit Program :
The California Film & Television Tax Credit Program was
enacted as a part of an economic stimulus plan to promote
production spending, jobs, and tax revenues in California.
The Program is administered by the CFC.
The credit first became available in July of 2009. Under
existing statute, a qualified taxpayer is allowed a credit
against income and/or sales and use taxes based on qualified
expenditures. The credit amounts to either 20% or 25% of
qualified expenditures, with a maximum of $500 million dollars
allocated total over the life of the program. The credit
cannot be used until January 1, 2011 and is not refundable.
The credit may be carried over for five years and may be
transferred to affiliates. Credits issued to independent
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films ($1 million- $10 million qualified expenditure budget
that is produced by a company that is not publically traded
and in which a publically traded company does not own more
than 25% of the shares) may be transferred or sold to an
unrelated party.
To be eligible for the credit, a project must meet the 75%
test (production days or total production budget in
California) and must be a qualifying motion picture.
For the purposes of a 20% tax credit, a qualifying motion
picture is defined as:
a) A Feature Film ($1 million minimum- $75 million maximum
production budget),
b) A Movie of the Week or Miniseries ($500,000 minimum
production budget); or
c) A new television series licensed for original
distribution on basic cable ($1 million minimum budget,
one-half hour shows and other exclusions apply)
For the purposes of a 25% tax credit, a qualifying motion
picture is defined as:
a) A television series, without regard to episode length,
that filmed all of its prior seasons outside of California;
or
b) An independent film.
In the 2009-2010 fiscal year, which was the initial year of
the program, $200 million was allocated. In each subsequent
year until the 2013-14 fiscal year, CFC will allocate $100
million. A minimum $10 million of the annual finding is made
available for independent films.
1)Findings of the Joint Oversight Hearing of Revenue & Taxation
and Arts, Entertainment, Sports, Tourism & Internet Media
Committees :
Monday, March 21, 2011, a Joint Oversight Hearing of the
Assembly Committee on Arts, Entertainment, Sports, Tourism, &
Internet Media and the Assembly Revenue and Taxation Committee
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was held on "California's Film Credit Under the Spotlight: A
Review of the Film and Television Tax Credit Program."
a) Run-away Production
At the state level, "run-away productions" are film or
television productions that are developed for initial
exhibition or broadcast in California, but that are
actually filmed in another state or country in order to
achieve lower production costs.
A number of other states (forty at last count) have adopted
or are adopting measures, including tax credits, to attract
film production. Various entities (state & local
governments, non-profits, labor unions and the film
industry, among others) indicate that tax credits and other
incentives to produce films outside California have
resulted in film production moving out of California and
into other states and countries.
According to the Los Angeles Economic Development
Commission (LAEDC):
"Most people think of film production running away to
Canada, though Europe was a quite popular destination
for a while (and Romania is currently). However,
run-away production to other states has become a more
significant challenge to California's film industry.
This trend impacts not only production activities in the
Los Angeles area, but film commissions around the state
that have also been facing this competition. LAEDC
tracked the location of major photography on feature
film production from Ý2003 to 2005]. Two things stood
out from this informal survey. One, when productions
leave California, the major studios still tend to go
offshore rather than to other states. In many cases,
these decisions are due to story considerations, but the
financial benefits are still important components of the
decision.
"The second trend is that independent producers are
increasingly going elsewhere in the U.S. Other states
have been busy offering new incentives or increasing the
level of existing incentives for filming in their
jurisdictions. More worrisome are the efforts to
develop production facilities to lure more of the
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production process. For example, in New Mexico, there
are plans to build a $60 million film, TV, and digital
media production facility in Albuquerque. New York is
working on a studio complex.
"LAEDC conducted research for the CFC on the job and
state tax revenue implications of run-away production.
On a "mid-budget" film ($17 million), 304 direct and
indirect jobs were created and $1.2 million state sales
and income taxes were generated. For a "large budget"
film ($70 million), 928 direct and indirect jobs were
created, while $10.6 million in state taxes were
generated. These were conservative estimates."
According to the CFC, "In 2003, 66% of studio feature films
were filmed in California. In 2009, only 38% of studio
films were filmed in state. San Francisco film and TV
production employment dropped 43% between 2001 and 2006.
"The Los Angeles region experienced a steady decline in
feature film production days in 11 out of the last 13
years. However, Film L.A., the permitting agency for Los
Angeles, reported that in 2010, feature film production
posted a 28.1% fourth quarter gain and a year-over-year
gain of 8.1%. "The annual increase can be wholly
attributed to California's Film and Television Tax Credit.
The Program attracted dozens of new feature film projects
to Los Angeles, which were responsible for 26% of local
feature production for the year. Were it not for these
projects, 2010 would have been the worst year on record,"
reported Film L.A. in their Jan. 11, 2011 release. These
numbers are an excellent early indicator that the incentive
program is having an immediate impact on production levels
b) Testimony Presented to the Committees by the CFC
Included the Following Information on the Economic Impacts
of the Current Film Tax Credit Program :
To date, $300 million in tax credits have been allocated
(reserved) resulting in:
Total aggregate direct spending by Program projects:
$2.2 billion
Total wages paid / to be paid by Program projects:
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$728 million
Further, using the generic multipliers for motion picture
and video industries in California, the broader economic
impact of the Program is as follows:
i) Total Output (business revenues): $6.5 billion.
Each dollar of film production spending in California
generates total output (business revenues) of $2.95
statewide, including the initial dollar. Economic output
is the increase in gross receipts realized by all firms
as a result of direct and indirect economic activity
associated with the initial production spending.
ii) Total Full Time Equivalent (FTE) jobs generated by
Program projects: 40,996.
Employment: Based on the RIMS II input-output model for
California, each $1 million of film production spending
in state generates 18.65 FTE jobs statewide, including
both direct employment (on the production) and indirect
employment (people who owe their jobs to the purchases
made by the firms and people working on each production.)
iii) Total earnings generated by Program projects: $1.8
billion.
Earnings: Each dollar of film production spending in
California generates total earnings of $0.81 statewide.
These are the earnings of the direct workers and indirect
workers.
In addition to the economic figures above, the CFC
presented testimony which included the following testimony
about the motion picture industry's general contribution to
the state's economy, "The motion picture industry is an
essential source of economic activity, tax revenue, jobs
and tourism for California contributing $38 billion dollars
annually to our state's economy and supporting nearly
250,000 well-paying direct jobs - with health benefits.
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"For instance: An average $70 million dollar feature film
generates $10.6 million in state sales and income taxes.
The average daily shooting costs on a feature film or TV
series range from $100,000 to $250,000 per day. (That's
actual dollars that each production spends on groceries,
hotel rooms, gas, building supplies, props and payroll.) A
typical film shooting outside of Los Angeles County will
spend on average $50,000 per day in a local community. The
average salary for production employees is $75,000, well
above the national average."
a) California Research Bureau (CRB) Data Demonstrates That
Loss of Feature Film Productions Drove Down Wages, Even
Though Production Days of Other Categories (Such as Reality
Television) Increased :
As background material for the Joint Oversight Hearing, and
in support of their testimony, the CRB prepared a briefing
packet that updated some basic data on employment, wages,
and production in California's movie and video production
industry; surveyed state Movie Production Incentive (MPI)
programs nation-wide; and surveyed the scholarly and
official state literatures on the operation and effects of
MPIs.
The CRB researchers offered their report with the caveat
that time and staffing constraints limited the
comprehensiveness of our response. The following is
excerpted from that document:
"The industry as a whole showed modest growth over the
first half of the decade through 2004, a flat trend through
2007, declined in 2008-9, followed by a sharp recovery in
2010. In California outside of Los Angeles County, the
industry peaked in 2002, showed slow employment declines
through 2007, and then rebounded in 2008-9.
"However, employment growth in Los Angeles County was
coupled with relative and absolute declines in average
industry wages. Los Angeles County movie industry
employees earned, on average, 27 percent more per month in
2000 than their non-L.A. counterparts ($4,279 - or $5,349
in 2009 dollars, vs. $3,370 - $4,213 in 2009 dollars). In
2009, the average L.A. County industry employee earned 13
percent less per month than his non-L.A. counterpart
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($3,754 vs. $4,232). Thus, in real terms, the L.A.
average thus dropped 30 percent, declining almost every
year, whereas the non-L.A. County average grew by a scant
0.45 percent for the decade.
"The growth in jobs coupled with declining real wages in
the industry in Los Angeles County could be consistent with
a change in industry composition from higher paying feature
film work, to other lower paying work. Our brief displays
data by year and production subcategory, including
television, feature films, commercials, and a residual
category that includes student films, documentaries, still
photography shoots, music videos and other production
activities. These data show that television and "other"
production activities (neither feature films nor
commercials) account for the large majority of total,
permitted production days in the L.A. area.
"Further, according to this data, feature film production
has declined since the beginning of the 2000s both in
absolute terms as well as in relative terms. Television,
which accounted for 23 percent at the start of the decade,
now takes more than 40 percent of the total production
days."
1)AB 1069 Deletes a Duplicate Section of Revenue and Taxation
Code :
When the original film tax credit measure was enacted into law
in 2009, there were two bills which carried the exact same
provisions; AB 15 3X (Krekorian), Section 4 of Chapter 10 of
the 3rd Extraordinary Session of the Statutes of 2009, which
added 17053.85 of the Revenue and Taxation Code, and SB 15 3X
(Calderon), which added Section 17053.85 as Section 4 of
Chapter 17 of the 3rd Extraordinary Session of the Statutes of
2009. Both bills were signed into law and codified.
AB 1069 would delete the redundancy in law, by repealing the
provisions of Revenue and Taxation Code as Section 4 of
Chapter 10 of the 3rd Extraordinary Session of the Statutes of
2009, while extending the sunset provisions of Chapter 17 for
five additional years.
2)Prior and Related Legislation :
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SB 1197 (Calderon), of the 2009-10 Legislative Session,
deleted the fiscal year limitation on the existing film
production tax credit. Held in Senate Revenue & Taxation
Committee without a hearing.
SBX8 55 (Calderon), of the 2009-10 Legislative Session,
deleted the fiscal year limitation in the existing production
tax credit. Held in Senate Rules Committee without a hearing.
ABX3 15 (Krekorian), Chapter 10, Statutes of the 2009-10 Third
Extraordinary Session, established a five year $500M tax
credit for qualified expenditures on qualified productions.
Limited allocations to $100M/year. Signed by Governor.
AB 855 (Krekorian), of the 2009-10 Legislative Session,
established a film production tax credit. Held at the
Assembly Desk.
AB 1696 (Bass), of the 2007-08 Legislative Session,
established a financial assistance program within the
California Film Commission (CFC) to encourage filming motion
pictures and commercials in California and requires the
Business, Transportation & Housing Agency to report the
economic impact of this program by December, 2011. Failed
passage on the Senate Floor.
SB 359 (Runner), of the 2007-08 Legislative Session, mega tax
credit bill which included motion picture production credit.
Part of State Budget negotiations. Created a credit for a
percentage of the wages paid of amounts paid to purchase or
lease tangible personal property in conjunction with the
production of a qualified motion picture. The credit is
certified and allocated by the CFC. The bill also allows the
credit to be claimed against the sales and use tax liability
of the company in lieu of the franchise or income tax
liability. Finally, the bill allows the credit to be carried
over until exhausted. Held in the Senate Revenue and Taxation
Committee.
AB 832 (Bass), of the 2007-08 Legislative Session, created
unfunded grant program administered by the CFC to encourage
filming motion pictures and commercials in California. Held
on the Assembly Appropriations Committee Suspense File.
SB 740 (Calderon), of the 2007-08 Legislative Session, created
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a film production credit equal to 100% of the direct revenues
attributable to the production or 125% of the revenues of the
productions in a TV series that relocated to California or an
independent film as defined. Held in Senate Revenue &
Taxation Committee without a hearing.
AB 777 (Nunez), of the 2005-06 Legislative Session, authorized
qualified motion picture tax credit in an amount equal to 12%
of the qualified production for qualified wages paid with an
additional 3% for qualified motion pictures. Created
refundable credit. Held in Senate Revenue & Taxation
Committee without a hearing.
SB 58 (Murray), of the 2005-06 Legislative Session, granted a
refundable income or corporation tax credit equal to 15% of
the amount of qualified wages paid and qualified property
purchased in the production of a qualified motion picture.
Held in Senate Revenue & Taxation Committee.
AB 261 (Koretz), of the 2005-06 Legislative Session,
re-established funding for the Film California First Program.
Gut and amended out in the Assembly Rules Committee and became
a transportation bill.
AB 1830 (Cohn), of the 2003-04 Legislative Session, authorized
tax credits between 2006 and 2012 in an amount equal to 15% of
qualified wages paid or incurred for services performed, with
respect to the production of each qualified motion picture.
Held in the Assembly Committee on Arts, Entertainment, Sports,
Tourism & Internet Media Committee without a hearing.
AB 1277 (Cohn), Chapter 662, Statutes of 2003, transferred
administrative authority over the CFC to the Business,
Transportation & Housing Agency. This bill also created the
Film California First Fund, administered by the CFC, which
provided for reimbursements to local governments for their
costs in issuing permits for local filming of motion pictures.
In the last two state budget cycles, no General Fund monies
have been appropriated to operate this program.
AB 2410 (Frommer), Chapter 1042, Statutes of 2002, required
the CFC to report annually the number of motion picture starts
that occurred within the State of California. The bill also
required EDD to research and maintain data on film industry
employment, to determine the economic impact of the film
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industry, to monitor film industry employment and activity and
competing states and countries, to examine the ethnic
diversity and representation of minorities in the
entertainment industry, to review the effect of federal, state
and local laws on the filmed entertainment industry and to
report that information to the legislature biannually,
provided that funds are appropriated by the legislature in the
annual Budget Act for these purposes.
AB 2747 (Wesson), of the 2001-02 Legislative Session, provided
a tax incentive to produce motion pictures within California.
Would offer tax credits to productions with a total cost of
qualified wages between $200,000 and $10 million for 15-25% of
wages paid to qualified individuals during the taxable year
with respect to qualified motion picture production depending
on the area. For each motion picture, the maximum amount of
wages per qualified individual that could be taken into
account when computing the credit was $25,000. Failed passage
in the Senate Appropriations Committee.
SB 2061 (Schiff), Chapter 700, Statutes of 2000, created the
State Theatrical Arts Resources (STAR) partnership which
offers surplus State property to filmmakers, where unused
State properties, such as health facilities and vacant office
structures, are available at no charge or "almost free" to
filmmakers.
AB 358 (Wildman & Kuehl), of the 1999-2000 Legislative
Session, provided a refundable income and corporation tax
credit for 10% of eligible wages paid for motion pictures and
TV programs produced in California. Held on the Senate
Appropriations Committee Suspense File.
AB 484 (Kuehl), Chapter 699, Statutes of 1999, created the
Film California First program, housed at the California Film
Commission to reimburse certain film costs incurred by a
qualified production company when filming on public property,
but which is currently unfunded.
3)Double-referral : Should this bill pass out of this committee,
it will be re-referred to the Assembly Committee on Revenue
and Taxation.
REGISTERED SUPPORT / OPPOSITION :
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Support
American Federation of Television and Radio Artists
California Labor Federation
California Teamsters Public Affairs Council
Directors Guild of America
Film Musicians Secondary Markets Fund
IATSE Local 44 - Affiliated Property Craftpersons
IATSE Local 80 - Motion Picture Studio Grips/Crafts Service
IATSE Local 600 - International Cinematographers Guild
IATSE Local 683 - Laboratory Film/Video Technicians, and
Cinetechnicians
IATSE Local 695 - Sound Technicians, Television Engineers, Video
Assist Technicians, and
Studio Projectionists
IATSE Local 700 - Motion Picture Editors Guild
IATSE Local 705 - Motion Picture Costumers
IATSE Local 706 - Make Up Artists & Hair Stylists Guild
IATSE Local 728 - Motion Picture Studio Electrical Lighting
Technicians
IATSE Local 729- Motion Picture Set Painters and Sign Writers
IATSE Local 767 - Motion Picture Studio First Aid Employees
IATSE Local 800 - Art Directors Guild and Scenic, Title, and
Graphic Artists
IATSE Local 844 - Motion Picture Studio Teachers and Welfare
Workers
IATSE Local 871 - Script Supervisors/Continuity, Accountants and
Allied Production
Specialists Guild
IATSE Local 892 - Costume Designers Guild
International Brotherhood of Teamsters, Local 399
Motion Picture Association of America
Professional Musicians - Local 47
Recording Musicians Association
Screen Actors Guild
Unite Here
Opposition
None known
Analysis Prepared by : Dana Mitchell / A.,E.,S.,T. & I.M. /
(916) 319-3450
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